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Regulation of the Day 158: Preparing Taxes

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The IRS wants to require all tax preparers to register with them, pass an exam, and take continuing education classes. Over at Investor's Business Daily, Caleb Brown and I explain why that would hurt consumers and taxpayers. Our main points:

Since the IRS has the power to revoke registrations, tax preparers will have to be careful not to advocate too aggressively for their clients.

There are at least 600,000 unregistered preparers. Many of them are retirees. Others have jobs, but prepare taxes on the side to help make ends meet. Still others are volunteers. They give their services for free to people who can't afford a tax preparer. How many will give up, rather than jump through the proposed regulatory hoops?

Big firms -- with more than 500 employees -- pay $7,755 per employee per year to comply with federal regulations. Their smaller rivals have to pay a whopping $10,585 per employee per year. That's a built-in competitive advantage of nearly $3,000 per employee, courtesy of Washington. No wonder so many businesses have D.C. offices these days.

H&R Block alone spent nearly $1 million on lobbying in the last half of 2009, much of it pushing for these very tax-preparer regulations. It wants the deck stacked even further in its favor.

The best solution to this problem is simplifying the tax code. There is no legitimate reason for the tax code to be so complicated that most people have to turn to others for help.